How Obama’s budget proposal could affect the construction of parks and libraries

Government is a bit like physics.

In high school physics you are taught that for every action there must be an equal and opposite reaction. This is also often the case in government.

Take, for example, President Obama’s budget proposal for the 2013 fiscal year unveiled this week.

As part of the proposal, Obama once again called for limiting tax breaks for families with incomes higher than $250,000. Included in his list of targeted tax breaks was those given for purchases of municipal bonds, according to a Reuters report.

To many taxpayers, this probably sounds like a good idea. Continue reading

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Should cities rely on “rainy-day” funds to balance their books?

New York City social service advocates last fall decried roughly $1 billion in spending cuts that would shut down fire stations, nix city-sponsored child care for low income families and slash library spending.

And with yet another multi-billion budget deficit projected for next fiscal year, starting July 1, many residents were bracing for a whole other round of cuts.

But in a budget plan announced late last week, New York City Mayor Michael Bloomberg proposed using the last of the city’s “rainy day” funds in order to balance next year’s budget without higher taxes or additional cuts to city services, according to the Associated Press.

“We spent years planning ahead, making government more efficient and saving for a rainy day,” the mayor said of the $6 billion the city put aside in the more flush days of his administration. “Thank goodness we had the reserve.”

While this is good news for New York City residents in the short-term, it still leaves unanswered how the city will balance the books in future years.

During his budget unveiling, Bloomberg said that there would still be rough roads ahead, according to the article.

Bloomberg warned that the city would have no reserve funds to depend on in future years. Estimates put the budget deficit at $3 billion in the fiscal year beginning July 2013, $3.5 billion the following year and $3.4 billion the year after that.

Using rainy day funds now is like putting a band-aid on a gushing wound — eventually it’s going to need more serious measures. Such major future deficits mean that city officials will ultimately have to raise taxes, cut services or both.

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Cities aren’t the only ones facing major pension costs

While my focus here on Budget Crunch is public agencies’ financial woes, I thought that to be fair I provide a bit of context that I have recently gained while covering corporate business news at Business Insider.

Since I started as an intern earlier this month, I’ve already written multiple times about  bankruptcy filings at some major U.S. corporations, and just like public agencies, it’s clear they are facing their own pension crises.

Click here to read my analysis of iconic junk food retailer Hostess’s Ch. 11 filings, and here to see the latest development in the American Airlines bankruptcy.

Whether its a public agency or private corporation, what it really comes down to is that these entities made promises they couldn’t keep decades ago, and the protracted recession is only adding to that extreme financial tension.

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A tale of two cities: How Jersey City is getting in its own way

Credit: Melanie Hicken

By Melanie Hicken

After years of planning, longtime Jersey City chef Nicole Puzio saw her dream of opening her own restaurant quickly turn into a nightmare.

Puzio and her business partner Edward Radich thought they had dotted there i’s and crossed their t’s. Before inking the lease for their restaurant space, they met with city inspectors to determine all that would be needed to secure proper permits. But months later, they were told of a whole new set of requirements they would need to fulfill before they could open their doors.

At the end of it all, they went $500,000 over their construction budget and were forced to pay a year of rent before their restaurant finally opened to rave reviews in August 2008. Underwater from the start and facing a recession-struck local economy, the restaurant was forced to close its doors less than two years later.

“We had no cushion left to sit on by the time we opened,” said Puzio, who now works as a sous chef at Maritime Parc in Jersey City. “The town makes it so difficult to even get there. By the time you open you have nothing left. It’s absolutely ridiculous.” Continue reading

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Another factor behind ballooning state pension bills

In Illinois, highway maintenance workers can retire at age 50 and receive

Credit: USA Today

$75,000 a year for life.

In Florida, a crime lab employee with 25 years on the state payrolls can retire at age 50 and take home $60,000 a year.

These are just a few examples provided by a USA Today special report on the expansion of special retirement benefits that allow state workers to retire as early as 50 years old with large pension checks for the rest of their lives.

Historically, these kind of pensions were reserved for public workers in dangerous, physically taxing jobs, like police and firefighters. But, according to the USA Today report, thirty one states have passed laws in the last decade that have expanded which workers get these cushy benefits.

The story is accompanied by an interactive graphic where you can check out what the benefits are in the state you live in. For example, in California the 11 employee categories that can qualify for the expanded pension benefits range from police dispatchers to park rangers.

“There’s been a massive increase in the scope of who qualifies for (early) retirement benefits,” William Eggers, public-sector research director at Deloitte consultants, told USA Today. “They’re supposed to be for people who are getting shot at and running into buildings that are on fire.”

It’s these kind of enhanced benefits packages that have gotten states into increasing financial trouble.

Take California, which according to a Stanford study released today , has seen it’s unfunded liability for employee retirement obligations reach $290.6 billion.

“That increased spending on pensions is virtually certain to continue to crowd out non-pension spending, including education and social services,” study author Stanford Professor Joe Nation wrote in the report.

And California’s not alone. I spoke to Nation and other experts when I was covering pension issues as a southern California city hall reporter and they all told me that most states are facing similar crises. It will take some major moves and agreement on the part of state legislators and union officials to even begin to address the growing problem.

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Attempted California tax hike: take two

Call it a case of déjà vu.

Two years ago, then-California Governor Arnold Schwarzenegger asked voters to approve a temporary tax increase to help fill the state’s massive budget deficit. I had just started working as a City Hall reporter in southern California at the time, and I clearly remember all the letters to the editor that ran at the time.

Voters answered with a resounding, “No!,” voting 2-to-1 against the emergency tax measure.

Now it seems California Gov. Jerry Brown is hoping voters will reconsider as he is expected to unveil a “multi-billion dollar tax initiative” that would raise income taxes on individuals making more than $250,000 a year and increase the state’s sales tax by half a cent. The hikes are expect to generate about $7 billion, according to the Los Angeles Times.

Brown, a Democrat, has argued that raising taxes is necessary to prevent further reductions but made a campaign promise not to do so without the approval of voters. After failing to win the necessary Republican votes to place a measure on the ballot as part of this year’s budget negotiations, the governor has vowed to do an end run by gathering voter signatures for his own initiative.

To some, a half a cent sales tax hike might not sound like a lot, but in many California counties the sales tax is already close to 10%.

That means the additional sales tax would bring taxes paid on a $50 dinner for two $500 television up to $5.13, the sales tax paid on a $500 television up to $551.25 and the sales tax paid on a $30,000 car up to $3,075.

As we discussed in my NYU macroeconomics class last week, tax theory tells us that flat levies, like sales taxes, tend to hit lower-income earners disproportionately. For someone on a fixed income, even a small sales tax hike can have budget effects, especially in a tax-heavy state like California.

The funny thing is that while Brown, who was attorney general at the time, ultimately supported Schwarzenegger’s proposal, he had first spoken out against the tax increases, telling the San Francisco Chronicle’s Spin Cycle blog that California “is one of the highest tax states around … so we’ve got to be competitive. We can’t drive all the jobs out and tax the few people who stay.”

Now it will be up the voters…again.

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Boomtown no more: how to save a troubled Las Vegas economy

I love Las Vegas.

Credit: pachd.com

The massive hotel pools. The glittering lights. The clink of slot machines. Hoards of people determined to gamble (and most likely lose) their hard-earned cash.

Many people say that you either love it or hate it. Well, I’ll admit it. I love it. And hailing from Southern California, I’ve probably been to Sin City far more times than the average American.

But even I, a self-described Vegas fan, have never stayed for more than a few days. That, you see, is my limit… the time when I need to return to reality.

It’s that mindset, though, that created a major problem for the Nevada economy in the wake of the housing bust and ensuing recession. Nevada’s financial health is intrinsically linked to the tourism and development industries.

When things are good, it’s great. But when things aren’t so good… Continue reading

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